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Quest Diagnostics Q1 Revenues Inch Up Slightly

NEW YORK (360Dx) – Quest Diagnostics today reported revenues for its first quarter were up a fraction of 1 percent year over year.

For the three months ended March 31, total revenues inched up to $1.89 billion from $1.88 billion in Q1 2018, beating analysts' average estimate of $1.87 billion. Revenues from Diagnostic Information Services grew to $1.81 billion from $1.80 billion.

On a conference call following the release of the results, Quest President, CEO, and Chairman Steve Rusckowsi said that test volume grew almost 4 percent year over year. Key test growth drivers in the quarter included tuberculosis, Cardio IQ, drug monitoring, and hemapathology blood cancer testing, "all of which showed revenue growth" in Q1.

Despite significant reimbursement headwinds during the quarter, 2019 is off to a "good start," he said, adding Quest is poised for growth on three fundamental changes in the marketplace, including changes related to the Protecting Access to Medicare Act of 2014 (PAMA). In Q1 Medicare reimbursements were reduced by the expected 10 percent with a similar reduction anticipated in 2020.

However, the cuts, Rusckowski said, are expected to continue to have a greater impact on smaller, independent, and hospital outreach laboratories and "could potentially eliminate their profit and will provide a catalyst for market consolidation."

He noted that in February, Trident Holding, a firm unrelated to Quest which provides mobile diagnostic testing for patients at assisted-living and skilled-nursing facilities, filed for Chapter 11 bankruptcy reorganization. The firm provided clinical laboratory testing services for more than 12,000 facilities in more than 35 states, with PAMA being cited as a factor in its bankruptcy, Rusckowski said.

In late 2017, the American Clinical Laboratory Association sued HHS saying PAMA was incorrectly implemented. Last September, a judge dismissed the lawsuit saying the plaintiffs did not have jurisdiction on the matter. Today, Ruskowski said, an appeal of that decision is being heard.

Further, Quest continues meeting with members of Congress for a legislative fix to PAMA, Rusckowski added.

He noted other changes that could drive growth for Quest, including an increasing focus among payors on the value of their spending. Yesterday, UnitedHealthcare named Quest as one of seven labs to be chosen in the insurer's new Preferred Laboratory Network. In a statement, UHC said that PLN "is an advanced way to work with selected lab providers to deliver care that places a greater emphasis on patient outcomes and the total cost of a person's care."

The other labs selected to be in PLN are Laboratory Corporation of America, AmeriPath/DermPath, which is a division of Quest; BioReference and its GeneDx business; Invitae; and Mayo Clinic Laboratories.

The company's strategy for growth has five elements: greater than 2 percent growth from acquisitions; expanding relationships with health plans and hospital health systems; offering the broadest access to diagnostic innovation; recognition as the consumer-friendly provider of diagnostic information services; supporting population health and data analytics, and extended care services.

On the M&A front, Quest has announced or closed on nine deals since the start of 2018, positioning the firm to meet its 2 percent growth target from acquisitions in 2019. The pipeline continues to be strong, Rusckowski said, and the company is in conversations with several health systems and "evaluating their hospital outreach lab strategy."

In Q1, Quest's SG&A spending grew 6 percent year over year to $384 million from $363 million.

The Secaucus, New Jersey-based lab company posted a profit of $164 million, or $1.20 per share, compared to a profit of $177 million, or $1.27 per share, a year ago. Adjusted EPS for the recently completed quarter was $1.40, above the consensus Wall Street estimate of $1.36 per share.

Quest finished the quarter with $464 million in cash and cash equivalents.

For full-year 2019, Quest maintained its prior revenue and EPS guidance. Net revenues are expected to be in the range of $7.60 billion to $7.75 billion, which would represent year-over-year growth of 1 percent to 3 percent. EPS is expected to be above $5.16, and adjusted EPS is expected to be greater than $6.40.  

In Tuesday morning trading on the New York Stock Exchange, Quest's shares were up 7 percent at $91.09.